Projections stand in spite of turbulent economic and political environment

PANAMA - Report 29 Jan 2016 by Marco Fernandez

We summarize in this document the impact of some key events in order to assess the economic panorama for Panama this year. Some of them are of internal nature:

The new banking regulations (adding to the likely increase in the cost of funds to local banks) that may increase the lending rates (in a country where internal credit is around 90% of GDP);
The tight equilibrium in the energy market; and the ever-present and unsolved quagmire issue of the water supply constraints.
On the positive side of the ledger, the public sector investment program will accelerate in 2016, especially in large infrastructure projects. The expansion of the Panama Canal will generate revenues sometime during the second semester.Private investment in energy and seaports are still present in the pipeline.
The cooper-mining project (Minera Panamá) is now advancing at full speed after a long delay for technical and political reasons.

External forces are also relevant:

The continuing deterioration of the Venezuelan FX market;
The threat to international capital flows (especially to local banks) by Panama´s continued presence on the so-called gray list defined as by FATF;
The slowdown (or outright recession) in large countries in Latin America.
Nevertheless, the reduction in oil-related products is felt immediately in Panama (we calculate that this reduction in prices may increase the level of national income by two percent).

Juan Carlos Varela is facing political challenges from several fronts. Political NGO’s initially in favor of Varela are accusing his administration of returning to the same corruption and nepotism practices of the previous government.

The re-election of the new Chief Justice became casus bellis for media and public opinion. All three State branches are under fire. However, Martinelli may not benefit from it because the Supreme Courte ruled in December his provisional detention in the wiretapping case.

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